Podcast
Questions and Answers
What action should be taken when the actual inventory is higher than the recorded amount?
What action should be taken when the actual inventory is higher than the recorded amount?
- Record the excess as an expense
- Decrease the recorded inventory
- Ignore the discrepancy
- Increase the recorded inventory to match the physical count (correct)
In a perpetual inventory system, if the recorded amount is $500,000 and the physical count is $700,000, what is the inventory overage amount?
In a perpetual inventory system, if the recorded amount is $500,000 and the physical count is $700,000, what is the inventory overage amount?
- $1,200,000
- $200,000 (correct)
- $500,000
- $700,000
What journal entry is required if the recorded amount is equal to the physical count?
What journal entry is required if the recorded amount is equal to the physical count?
- Record an adjustment to increase the inventory
- Record an adjustment to decrease the inventory
- Record the physical count as an expense
- No adjustments are required (correct)
How is inventory overage classified in accounting?
How is inventory overage classified in accounting?
Which statement is true regarding the recorded amount and physical count?
Which statement is true regarding the recorded amount and physical count?
What is the consequence of failing to adjust the recorded inventory when there is an overage?
What is the consequence of failing to adjust the recorded inventory when there is an overage?
Which of the following does not require a journal entry under a perpetual inventory system?
Which of the following does not require a journal entry under a perpetual inventory system?
What does an inventory overage indicate about a company's inventory management?
What does an inventory overage indicate about a company's inventory management?
What does freight collect mean?
What does freight collect mean?
What is the proper journal entry to account for freight collect?
What is the proper journal entry to account for freight collect?
How is the accounts payable total computed based on the provided data?
How is the accounts payable total computed based on the provided data?
What is the effect of the buyer paying the freight on cash?
What is the effect of the buyer paying the freight on cash?
Which account is credited in the journal entry related to freight collect?
Which account is credited in the journal entry related to freight collect?
What is the total amount represented in the Accounts Payable?
What is the total amount represented in the Accounts Payable?
What happens to the accounts payable when the buyer pays the freight?
What happens to the accounts payable when the buyer pays the freight?
In the compound journal entry, which account reflects the purchase amount?
In the compound journal entry, which account reflects the purchase amount?
Which amount is included in the total accounts receivable?
Which amount is included in the total accounts receivable?
What is the primary purpose of the compound journal entry regarding freights?
What is the primary purpose of the compound journal entry regarding freights?
What is the net sales if gross sales amount to P600,000, with sales returns of P50,000, sales allowances of P10,000, and sales discounts of P20,000?
What is the net sales if gross sales amount to P600,000, with sales returns of P50,000, sales allowances of P10,000, and sales discounts of P20,000?
What would be the journal entry when the buyer pays after the expiration of the discount period for a purchase of P600,000 with terms 2/10, n/30?
What would be the journal entry when the buyer pays after the expiration of the discount period for a purchase of P600,000 with terms 2/10, n/30?
If a buyer paid within the discount period for merchandise worth P500,000 with terms 2/10, n/30, what is the cash amount paid?
If a buyer paid within the discount period for merchandise worth P500,000 with terms 2/10, n/30, what is the cash amount paid?
What is the significance of FOB destination in transactions according to the content?
What is the significance of FOB destination in transactions according to the content?
Which of the following journal entries correctly reflects a return of merchandise worth P5,000?
Which of the following journal entries correctly reflects a return of merchandise worth P5,000?
Which payment reflects the consequence of receiving a freight bill for a previous transaction?
Which payment reflects the consequence of receiving a freight bill for a previous transaction?
If a bookstore sold merchandise worth P9,730 for cash, what effect would this transaction have on the company's financial statements?
If a bookstore sold merchandise worth P9,730 for cash, what effect would this transaction have on the company's financial statements?
What is the primary purpose of conducting a physical count in the Periodic Inventory System?
What is the primary purpose of conducting a physical count in the Periodic Inventory System?
What journal entry should be made when issuing a credit memo for returned merchandise worth P1,800?
What journal entry should be made when issuing a credit memo for returned merchandise worth P1,800?
Which entry reflects the adjustment for the ending inventory in the Periodic Inventory System?
Which entry reflects the adjustment for the ending inventory in the Periodic Inventory System?
In which inventory system are adjusting entries for shortages made?
In which inventory system are adjusting entries for shortages made?
What circumstance necessitates adjustments in the Perpetual Inventory System?
What circumstance necessitates adjustments in the Perpetual Inventory System?
What must be done to the Merchandise Inventory account before entering the ending inventory?
What must be done to the Merchandise Inventory account before entering the ending inventory?
Why is there a need for a physical count at the end of the year even in the Perpetual Inventory System?
Why is there a need for a physical count at the end of the year even in the Perpetual Inventory System?
Which statement is true about the adjustments made in a Periodic Inventory System?
Which statement is true about the adjustments made in a Periodic Inventory System?
What is a key defining feature of the Periodic Inventory System?
What is a key defining feature of the Periodic Inventory System?
What does an inventory shortage of $100,000 indicate in a perpetual inventory system?
What does an inventory shortage of $100,000 indicate in a perpetual inventory system?
What is the main difference between perpetual and periodic inventory systems concerning inventory shortages?
What is the main difference between perpetual and periodic inventory systems concerning inventory shortages?
In a periodic inventory system, what is the purpose of conducting a physical count?
In a periodic inventory system, what is the purpose of conducting a physical count?
When the recorded amount is greater than the physical count in the periodic system, what adjustment is made?
When the recorded amount is greater than the physical count in the periodic system, what adjustment is made?
How is an inventory shortage classified in the financial statements?
How is an inventory shortage classified in the financial statements?
If the recorded amount is less than the physical count in a perpetual inventory system, what action is taken?
If the recorded amount is less than the physical count in a perpetual inventory system, what action is taken?
What happens when a company fails to account for an inventory shortage?
What happens when a company fails to account for an inventory shortage?
Which of the following statements is true regarding the treatment of inventory counts?
Which of the following statements is true regarding the treatment of inventory counts?
Study Notes
Inventory Adjustment
- Inventory overage is an accounting adjustment that occurs when the physical inventory count exceeds the recorded inventory balance in the accounting records.
- Inventory shortage is an accounting adjustment that occurs when the physical inventory count is lower than the recorded inventory balance in the accounting records.
- Inventory adjustments are necessary for perpetual inventory systems, as these systems constantly track inventory levels.
- When an entity uses a periodic inventory system, the inventory is not updated from time to time, therefore the ending inventory needs to be updated based on a physical count.
- Inventory shortage is considered an expense, and is recorded to the income statement.
- Inventory overage is considered income, and is recorded to the income statement.
Physical Inventory Count in Specific Systems
- In perpetual inventory systems, physical inventory count is used to verify the accuracy of the record. This helps identify discrepancies between recorded inventory and actual inventory.
- In periodic inventory systems, physical inventory count serves as the primary source to determine the ending inventory balance.
Causes of Inventory Discrepancies
- There are several reasons why discrepancies between the recorded inventory and physical inventory count may occur:
- Errors in recording purchases, sales, or returns
- Damage, theft, or spoilage of goods
- Mistakes in physical counting process
Inventory Adjusting Entries
- Inventory adjusting entries are used to correct the inventory balance based on the physical count.
- These entries are made at the end of an accounting period and can either increase (overage) or decrease (shortage) the inventory balance.
Inventory Shortage
- The recorded amount is more than the physical count
- Adjusting Entry for Inventory Shortage in a Perpetual Inventory System:
- Debit: Inventory Shortage – This reflects the amount of the shortage.
- Credit: Merchandise Inventory – This reduces the recorded inventory balance to match the physical count.
- Adjusting Entry for Inventory Shortage in a Periodic Inventory System:
- Credit: Income Summary – This reflects the amount of the shortage.
- Debit: Merchandise Inventory – This reflects the updated ending inventory balance based on the physical count.
Inventory Overage
- The recorded amount is less than the physical count
- Adjusting Entry for Inventory Overage in a Perpetual Inventory System:
- Debit: Merchandise Inventory – This increases the recorded inventory balance to match the physical count.
- Credit: Inventory Overage – This reflects the amount of overage
- Adjusting Entry for Inventory Overage in a Periodic Inventory System:
- Debit: Merchandise Inventory – This reflects the updated ending inventory balance based on the physical count.
- Credit: Income Summary – This reflects the amount of the overage.
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Description
This quiz covers key concepts related to inventory adjustments in accounting, including overage and shortage. Learn how different inventory systems, such as perpetual and periodic, manage physical counts and their implications on financial statements. Test your understanding of how these adjustments impact accounting records.
